Feb. 19 (Bloomberg) -- Japanese Finance Minister Taro Aso
said the government has no intention of buying foreign bonds
through a fund with the Bank of Japan, comments that caused the
yen to strengthen.

“We don’t intend to buy foreign bonds,” Aso told
reporters in Tokyo, when asked if such a fund is planned. He
also said that the government is not considering any immediate
change to the law governing the BOJ.

Aso’s remarks contrast with those of Prime Minister Shinzo
Abe, who told parliament yesterday that buying foreign bonds
“exists as one idea” for monetary policy and the BOJ law may
be revised if the central bank fails to get results. Investors
are trying to assess Abe’s commitment to ending deflation and
reviving economic growth as he prepares to choose a new BOJ
governor next week.

The yen extended its first gain in three days after Aso
later said in parliament that the currency’s “unexpected” fall
was the result of the government’s economic policies. The
comments came after he said on Feb. 8 that the yen’s fall was
too fast.

The currency was 0.5 percent higher at 93.49 per dollar at
5:05 p.m. in Tokyo, while the Nikkei 225 Stock Average closed
0.3 percent lower.

The Group of 20’s position on currencies could make it
difficult for the BOJ to buy foreign bonds, as the policy could
be interpreted as a direct attempt to weaken the yen. G-20
finance chiefs this week pledged to refrain from targeting
exchange rates for competitive purposes.

Economy Minister Akira Amari told reporters today that
Abe’s comments referred to buying foreign bonds as a general
policy idea that is available to any country.

Shirakawa’s Successor

Abe will decide his nominee for a successor to Bank of
Japan Governor Masaaki Shirakawa next week, after meeting with
President Barack Obama in Washington.

“Once the summit is over, he will consider the BOJ
governor candidates,” Chief Cabinet Secretary Yoshihide Suga
told reporters today. “That should be next week.”

Shirakawa, who steps down on Mar. 19, has said that buying
foreign bonds would amount to currency intervention, which is
the responsibility of the finance minister.

The BOJ last month agreed to a 2 percent inflation target
and to make open-ended asset purchases from 2014. Shirakawa said
today in parliament that a sudden increase in prices could spark
a rise in long-term bond yields.

Two policy board members dissented from the adoption of the
target, minutes of the Jan. 21-22 meeting released today by the
central bank showed.

Sato, Kiuchi

Takehiro Sato and Takahide Kiuchi said that 2 percent
inflation would not be consistent with price stability, adding
that the central bank is unlikely to influence inflation
expectations just by setting a target.

Abe’s ruling Liberal Democratic Party has proposed a fund
run by the BOJ, the Ministry of Finance and private investors to
buy foreign bonds. Kazumasa Iwata, a potential candidate to
replace Shirakawa, proposed something similar.

Iwata said in an interview last year that the BOJ should
create a 50 trillion yen ($533 billion) fund to buy foreign
bonds to combat the strong yen. Iwata is a possible candidate to
become BOJ governor according to Koichi Hamada, a retired Yale
University economics professor who is advising Abe on monetary
policy.